Better Buy: Amgen vs. Gilead Sciences

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Amgen (NASDAQ: AMGN) and Gilead Sciences (NASDAQ: GILD) are biotech behemoths. Each sells a portfolio of drugs that earn them billions in annual revenue and profits.

However, both of these companies are mature, and both are currently struggling to move their bottom lines. So which stock would be the better choice for investors to add to their portfolios today?

Businessman staring at two doors

Image source: Getty Images.

Growth

Amgen sells more than a dozen drugs, but Enbrel, Neulasta, and Aranesp are its biggest money-makers by far. These three products delivered more than half of the company’s total revenue last year. That isn’t great news, though, because sales of all of them are falling.

Fortunately, sales of a number of Amgen’s other drugs are rising rapidly, which is helping to offset those declines. Billion-dollar compounds such as the osteoporosis drug Prolia and the cancer drug Xgeva are growing revenues at double-digit percentage rates. The multiple myeloma medicines, Blincyto and Kyprolis, are on the cusp of blockbuster status, and their sales continue to grow.

Then there is the cholesterol-lowering drug Repatha, the hyperparathyroidism drug Parsabiv, and the company’s biosimilar portfolio, all of which are starting to generate meaningful revenue, and should remain in high-growth mode for years to come.

That said, the drag of the falling sales of Enbrel, Neulasta, and Aranesp is going to be so heavy that analysts don’t predict much bottom-line growth for Amgen at all. The current consensus estimate is that profits will rise by roughly 2% annually over the next five years.

Gilead’s growth has been powered for decades by its dominance in the HIV market. The company has a long history of consistently increasing its profits by developing next-generation HIV drugs. Its latest HIV all-star is Biktarvy, which is already pulling in billions in annual revenue. Its sales are growing like gangbusters, so it should go a long way toward offsetting the weakness in Gilead’s older HIV drugs such as Atripla and Truvada.

But Gilead has been expanding its presence in other disease treatment markets as well. The company spent $12 billion to acquire Kite Pharma a few years ago to get its hands on a CAR-T therapy called Yescarta. It’s also intensely focused on gaining a foothold in the immunology business: The company has partnered with Galapagos on a potential treatment for rheumatoid arthritis that holds blockbuster potential.

All of these opportunities look great, but the big problem for Gilead is that sales in its hepatitis C franchise have been heading in the wrong direction for years. Gilead has had to make massive price cuts on its top-selling drugs like Epclusa, Harvoni, and Sovaldi as competition in the space has heated up. That’s caused huge headaches for the business.

All told, market watchers currently estimate that Gilead’s bottom line will shrink by more than 3% annually over the next five years.

Winner: Amgen

Value

Amgen is currently trading for about 15 times trailing earnings, and just 13 times forward earnings estimates. These numbers represent a sharp discount to the S&P 500‘s valuation averages, but that makes sense given the company’s low growth outlook.

Gilead, unsurprisingly, isn’t being priced for growth either. The stock is currently trading for 16 times trailing earnings and less than 10 times forward earnings estimates.

At these levels, both stocks’ valuations are low enough that they should attract the attention of value investors, but there’s no question that Gilead’s stock is cheaper right now.

Winner: Gilead Sciences

Income

Both of these biotech giants have become attractive dividend payers in recent years.

Amgen’s yield currently tops 3%, which is much higher than the average for the S&P 500. And its payouts only consume about 41% of profits right now, so management has plenty of room to boost the dividend.

Gilead’s yield is more than 3.8%, which is almost twice the market average. It also looks quite safe since it only consumes about 54% of net income.

Both companies have grown their dividends at a fast pace over the last five years, which should be music to income investors’ ears.

AMGN Dividend Chart

AMGN Dividend data by YCharts

Amgen and Gilead both pay out respectable dividends, but I’m inclined to give a slight edge to Amgen here since it sports a lower payout ratio, and has grown its dividend at a faster rate in recent years.

Winner: Amgen

The better buy

There are solid reasons for value investors to take a closer look at both of these stocks right now, but to my eyes, Amgen is the better choice. It isn’t expected to grow by much, but that’s a far better situation than Gilead Sciences, where net income is expected to decline over the next five years.

Amgen’s dividend has also grown at a faster pace in recent years, and has more room for upside given the company’s lower payout ratio.

I don’t think you’ll make a ton of money buying either of these stocks today, but if I had to choose, I’d rather bet on Amgen since it’s still in growth mode.

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Brian Feroldi has no position in any of the stocks mentioned. The Motley Fool owns shares of Gilead Sciences. The Motley Fool has a disclosure policy.

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